Primary Section

US to ramp-up LNG and coal exports

Citigroup has today released interesting analysis of US President Barack Obama’s new Climate Action Plan, which is highly supportive of renewables and natural gas, but negative for coal.

On LNG exports, Citigroup says the following:

In an effort to encourage fuel switching from coal to gas globally and developing a global market for gas, US LNG exports should play a key role adding to supply worldwide, using lower cost US gas to bring down LNG prices globally and encouraging fuel switching to gas. This is consistent with the President’s remark several weeks ago in turning the US as a net natural gas exporter by 2020.

The US Department of Energy has approved 3.6-Bcf/d of LNG export liquefaction projects already. It looks likely that more approvals will be made throughout this year. Government officials indicated that it takes about two months to review a project and make a decision on approvals. It is possible that the number of approved liquefaction facilities could even exceed the current industry estimates, so as to encourage the development of a global market for gas and make allowance for projects receiving approvals but not necessarily get built.

With the LNG export-positive election result in British Columbia, North America could be poised to supply 9- to 12-Bcf/d (70- to 90-mtpa), or nearly 20% of the global market and the largest export source by 2020.

On coal, Citigroup notes the following:

Coal is negatively affected in the President’s plan in a number of areas… Imposing emission standards on new and existing power plants will disproportionately affect coal-fired generation, as a typical coal-fired power plants emit double the amount of carbon dioxide as a combined cycle natural gas-fired power plants.

The US government is expected to end its support for public financing of new coal plants globally, except for clean coal, carbon capture and sequestration, and the most efficient coal-fired generation in the poorest countries that have no other options…

The potential positive for coal is possibility of greater US coal exports. With lower domestic coal demand, coal exports to Europe and Asia could rise. The increase of gas and coal exports and the reduction in oil imports effectively raises global supply, all else equal. As Europe continues to import lower cost coal from the US and eventually LNG from North America, the use of high cost, oil-indexed natural gas could be eroded further. Major gas exporters to Europe that insist on oil-indexed pricing should see their market shares dwindle further. Those countries that rely on oil and gas exports should see export revenue decline.

Clearly, the President’s new Climate Action Plan is bad news for Australia, given we are likely to experience increased competition from both LNG and coal exports from the US, which will act to depress prices globally.